Posts tagged ‘US shale’

Oil and gas majors have brushed themselves off after the industrywide downturn and are back on their feet trying to mimic the success of smaller companies in US shale. But many doubters still question whether Big Oil is up to the task after failing at earlier attempts in such plays.

The setbacks to global majors’ shale efforts earlier in the decade were well-publicized. Several invested heavily in shale gas before prices collapsed, as more nimble rivals charged into liquids-rich plays.

OPEC would benefit from more transparency about oil prices. The group has geared its efforts to rebalancing the market, but its ultimate goal is surely to maximize revenues for its members. Putting a number on this target would be helpful.

After all, with many ministers claiming there is still a distance to go when the alliance has pretty much realized its stated aim, the focus on fundamentals is starting to look like a fig leaf.

As oil prices recover from the lows of 2014, US shale producers face a choice: continue to invest in record production or start returning cash to investors who helped them weather the downturn.

It used to be that investors rewarded US upstream operators that could quickly grow production. More crude output growth per quarter separated oil patch E&P champions from the rest of the pack. That paradigm came under pressure starting in 2014, when prices plunged and common wisdom said producers would curb output and ride out the storm.

The oil market has come to be defined by several narratives over the past couple of years: market rebalancing, OPEC versus shale, Russia’s delicate relationship with OPEC, OPEC’s conformity with production cuts with the latest deal extension running to end of 2018 and shale’s resilience to lower prices. But these frameworks have created a narrow ideology that could harm the way producers participate in the oil market this year and beyond.

Myth 1: OPEC’s exit strategy means exit

The idea that the 24 producers who came together and struck a deal to cut production by 1.8 million b/d in November 2016 are somehow going to ‘exit’ the alliance later this year is misleading. There will be no exit when OPEC, Russia and other non-OPEC producers decide the market has rebalanced—based on OECD stock levels reaching their five year average — rather a continuation of the grand alliance under amended, and most probably looser, terms.

Ever closer relations between Saudi Arabia and Russia, the world’s two largest oil exporters, look like a nightmare for China, the world’s largest oil importer. However, as the originator of demand in a world where peak oil consumption hovers on the horizon, it is Beijing that ultimately holds the whip hand.